Archive | January 31, 2009

Clico Investment Bank Failure


titanic

Could the failure of the Trinidad and Tobago conglomerate  CL Financial, the largest financial group in the Caribbean, be the tip of the financial crisis in Trinidad and Tobago and the Caribbean?  Is the financial Titanic about to hit? If citizens are asking what the country would be getting for the multibillion dollar Government bailout of CL the answer would be a financial system which has not collapsed. If people are asking why no beefed-up laws were passed to regulate CL Financial when the Central Bank became concerned about their high risk ventures since 2004, the answer would be who knows.

The worst thing a financial institution and system could experience is a run. No financial system could endure a run by its depositors for very long since runs are to banks what silver bullets are to werewolves. Financial systems survive on confidence and the lack of confidence can move from one institution to the next easily like a forest fire in the wind.  In the financial world the strong usually pays for the sins of the weak. As ludicrous as it seems right now, the best thing the public could do is be concerned but party. People should leave the financial institutions alone and let the regulators do what has to be done. This is one time where don’t worry be happy might work. The other banks in Trinidad and Tobago are stable and we were told the others never went into those high-risk ventures that CL Financial was prone to undertake. The problem with high-risk financial institutions is that most of the people who invested in them were ignorant to how high risk the ventures were and made the decision to invest based on a glossy brochure an/or an insurance agent – the two least credible sources of the truth.

For Trinidad and Tobago’s and the Caribbean’s sake I hope the valuable assets of CL Financial prove to be valuable. Maybe this is the right time for cash-rich China to step in and acquire a part of Trinidad and Tobago at fire sale prices. Or maybe they will wait for it to burn a little bit more.

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